STUDENT LOAN REPAYMENT OPTIONS PowerPoint Presentation, PPT - DocSlides

STUDENT LOAN REPAYMENT OPTIONS

December 2011

STUDENT LOAN REPAYMENT OPTIONS

Raina Chezem

Regional Director, Partner Solutions

Nelnet

Loan Servicing

GRACE PERIOD, DEFERMENTS, FORBEARANCE, AND FORGIVENESS PROGRAMS

GRACE PERIOD

Stafford

loans have a grace period; repayment begins six months after student graduates, withdraws, or drops below half-time enrollment.

PLUS

loan repayment begins 60 days after full disbursement. Borrower may defer repayment while the student for whom the parent obtained the loan is enrolled at least half time, and for Direct PLUS Loans first disbursed on or after July 1, 2008, for an additional six months after the student graduates or drops below half-time enrollment.

GradPLUS

repayment begins at the time the loan is fully disbursed, and the first payment is due within 60 days after the final disbursement. However, you may defer repayment while you are enrolled at least half-time. If your Direct PLUS Loan was first disbursed on or after July 1, 2008, you may also defer repayment for an additional six months after you cease to be enrolled at least half-time.

Direct Loan Servicing Center or lender/servicer will send notification of your first payment due date during your grace/deferment period, if applicable.

DEFERMENTS

A deferment is a period of time when payment on a loan is

temporarily

postponed.

Interest payment

Federal government pays the interest during deferments for subsidized loans and for the underlying subsidized loans that were consolidated.

Borrower is responsible for the interest for unsubsidized Stafford loans, GradPLUS loans, and PLUS loans and for the underlying unsubsidized loans that were consolidated

TYPES OF DEFERMENTS

Enrolled at least half-time at an approved postsecondary school

Study in an approved graduate fellowship program or an approved rehabilitation training program for the disabled

Unable to find full-time employment (up to 3 years)

Economic Hardship (up to 3 years)

Engages in service listed under discharge/cancellation conditions (Perkins only)

Active Military Duty, for loans first disbursed on/after July 1, 2001; while borrower is on active duty during a war or other military option, or national emergency (up to 3 years)

www.studentloans.gov

FORBEARANCE

Forbearance is a

temporary postponement

or reduction of payments for a period of time

Personal problems such as poor health or economic hardship

Affected by circumstances such as a national emergency, military mobilization, or natural disaster

Have exhausted eligibility for an internship deferment

Are serving in a position that may, after a specified period of service, qualify for loan forgiveness, partial repayment of loan, or a national service educational award

FORBEARANCE

The borrower is responsible for the interest that accrues during a forbearance

Recommendation

Pay at least the interest, as it accrues during forbearance

Capitalization of interest—interest is added to the principal balance of the loan, which increases debt and results in paying interest on interest

MANDATORY FORBEARANCE

Medical or dental internship or residency

Have student loan payments that are 20% or more of monthly income

Have payments being made for borrower by the Department of Defense

LOAN DISCHARGE PROGRAMS

Death

Total and permanent disability

Borrower’s school fails to pay a refund as required if borrower withdraws

Borrower is unable to complete his/her program of study due to school closure

Borrower’s loan was falsely certified as a result of crime or identity theft

Borrower’s school falsely certified or fraudulently completed a loan application in borrower’s name without his/her approval

TEACHER LOAN FORGIVENESS PROGRAM

Teacher Loan Forgiveness Program

All federal loans issued after October 1, 1998

Borrower teaches as a highly qualified teacher in a qualifying low-income school for five consecutive, complete academic years

The loan for which the borrower is seeking forgiveness was made before the end of the fifth year of his/her qualifying teaching service

Public Service Loan Forgiveness Program

Created to encourage individuals to enter and continue to work full-time in public service jobs.

May qualify for forgiveness of the remaining balance due on your eligible federal student loans after you have made 120 payments on loans under certain repayment plans while employed full time by certain public service employers.

Only non-defaulted loans made under the William D. Ford Direct Loan Program are eligible for loan forgiveness. The Direct Loan Program includes the following types of loans:

Federal Direct Stafford Loans (Direct Subsidized Loans)

Federal Direct Unsubsidized Stafford Loans (Direct Unsubsidized Loans)

Federal Direct PLUS Loans (Direct PLUS Loans)- for parents and graduate or professional students

Federal Direct Consolidation Loans (Direct Consolidation Loans)

Note: Only payments made on the Direct Consolidation Loan will count toward the required 120 monthly payments. Payments made prior to consolidation are not eligible.

Public Service Loan Forgiveness Program

The 120 required payments must be made under one or more of the following Direct Loan Program repayment plans:

Income Based Repayment (IBR) Plan

Income Contingent Repayment Plan

Standard Repayment Plan

with a 10-year repayment period

Any other Direct Loan Program repayment plan, but only payments that are at least equal to the monthly payment amount that would have been required under the Standard Repayment Plan with a 10-year repayment period may be counted toward the required 120 payments.

REPAYMENT PLANS

REPAYMENT PLANS

Offered under both Direct Loans & FFELP (Federal Family Education Loan Program)

Standard

Graduated

Extended

Income-based

Specific to loan program

Income-contingent (Direct Loans)

Income-sensitive (FFELP)

REPAYMENT PLANS

For all repayment plans, student can:

Prepay loans

without penalty

Pay on a shorter schedule

Change repayment plans once per year

STANDARD REPAYMENT PLAN

Lowest total loan cost

Regular payments of both principal and interest are due monthly, excluding periods of deferment and forbearance

Minimum monthly payment is $50

Monthly payment will not be less than the monthly accrued interest

10-year repayment term

GRADUATED REPAYMENT PLAN

Monthly payments are smaller at the start of the repayment period and gradually increase every two years

10-year repayment term

Total amount paid in interest will be greater than under the standard repayment plan

EXTENDED REPAYMENT PLAN

Lengthens repayment term up to 25 years

Available to borrowers with more than $30,000 in federal student loans (per program)

Total interest costs may be higher over life of the loan, although monthly payment amount may be lower

Payments may be significantly lower under IBR, but would also take longer than standard 10 years to repay, resulting in paying more over life of loan Must have a “partial financial hardship” (PFH) to qualify for IBR Provides interest subsidy on subsidized loans for up to 3 years if IBR payment is less than accrued interest on those loans* Provides forgiveness of remaining balance after 25 years (300 eligible payments)* IBR Subsidy is for the amount of interest that the scheduled payment amount does not cover. This differs from interest subsidy for deferments and other periods where all in the interest is covered. All interest would be covered if payment amount is $0.

IBR: WHAT IS INCOME BASED REPAYMENT?

IBR: LOANS ELIGIBLE FOR IBR

Eligible:FFELP / Direct StaffordFFELP / Direct Grad PLUS Supplemental Loans (SLS)FISLFFELP / Direct Consolidation

Non-eligible:

Parent PLUS

Consolidations w/ Parent PLUS

Non-FFELP or Non-RDL

State loans

Perkins Loans

Private loans

IBR: PARTIAL FINANCIAL HARDSHIP (PFH)

Based on income and family size

Final rules effective 07/01/2010 allow for the PFH to be determined based on the greater of either: the amount due at the time the loans entered repayment or at the time the borrower or spouse requests the IBR plan.

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Borrower’s annual loan payment using the Standard 10-year Repayment Plan

15% of (borrower’s adjusted gross income – 150% of poverty line amount)

ExamplesSingle borrowerwith no dependentsMarried borrower with two children(and no spousal income or spousal student loan debt)Married borrowerwith no other dependents (spousal income and loan debt)Eligible student loan debt$40,000$80,000$40,000Interest rate6.8%6.8%6.8%Adjusted Gross Income$30,000$60,000$25,00010-year Standard plan monthly payment$460$920$460Estimated monthly PFH payment under IBR plan$170$340$40Reduction in monthly payment amount$290$580$420

IBR: SCENARIOS

ExamplesSingle borrowerwith no dependentsMarried borrower with two children(and no spousal income or spousal student loan debt)Married borrowerwith no other dependents (spousal income and loan debt)Eligible student loan debt$40,000$80,000$40,000Interest rate6.8%6.8%6.8%Adjusted Gross Income$15,000$33,400$22,50010-year Standard plan monthly payment$460$920$460Estimated monthly PFH payment under IBR plan$0$0(PFH result was $4)$10(PFH result was $8) Reduction in monthly payment amount$460$920$450

IBR: SCENARIOS

IBR: IBR AND MARRIED BORROWERS (FILING A JOINT TAX RETURN)

Adjusted Gross Income (AGI) is used to determine qualification

Prior to 7/1/10, for married borrowers filing a joint tax return, we considered both spouses AGI, but only the borrower’s debt in determining Partial Financial Hardship (PFH).

Under the rules effected on 7/1/10, we use the AGI on the joint tax return and are able to use both of the borrower’s eligible loan balances to determine PFH.

NOTE: This change is allowed even if only one spouse applies for IBR.

IBR: CHANGES UNDER STUDENT AID AND FISCAL RESPONSIBILITY ACT (SAFRA)

Under SAFRA, new borrower’s payment will not exceed 10% of the discretionary income (currently 15%)

Outstanding balance will be discharged after 20 years (currently at 25 years)

NOTE: These changes are only applicable to NEW borrowers that receive their loan on or after 7/1/2014

IBR: LOAN FORGIVENESS

The earliest a borrower may qualify for loan forgiveness under IBR is 2034 (July, 1, 2009 + 25 years)

Servicer Perspective: Specific claim filing instructions have not yet been determined, but it is assumed the servicer files a discharge request with the guarantor and payment for remaining balance of principal & interest is paid.

For ED servicers, there will be no claim filing process

Borrower Perspective: If they make it to 2034 with a balance, the loan is to be forgiven

Portion left over after the forgiveness years is taxable income

IBR: LOAN CAPITALIZATION

Interest accrues while a borrower is in a period of Partial Financial Hardship (PFH). Capitalization occurs if/when PFH status ends.

Capitalization occurs:

if they no longer qualify for PFH

if they go back to a regular repayment schedule (Permanent Standard)

at end of deferment or forbearance

if they were to go to another repayment plan

Since interest does not capitalize until you end a PFH status, there is a benefit to staying in a PFH payment as long as possible.

INCOME-SENSITIVE REPAYMENT PLAN

Offered only to borrowers under the FFELP

Monthly payment varies according to gross monthly income

Monthly payment covers at least monthly accruing interest

Must reapply annually

Total interest costs will be higher over the life of your loan than with standard repayment

Maximum repayment period is 10 years

INCOME-CONTINGENT REPAYMENT PLAN

Offered only to borrowers under the Direct Loan Program

Monthly payment based on adjusted gross income, family size, and total Direct Loan debt

If payment does not cover interest accrued, unpaid amount is capitalized annually.

Maximum repayment period is 25 years, and any balance after 25 years (time spent in deferment or forbearance does not count) is forgiven.

REPAYMENT CHART

REPAYMENT CHART (STD 10 YEAR)

Loan Amount

Monthly Payment at 4%

Monthly Payment at 5%

Monthly Payment at 6%

Monthly Payment at 7%

Monthly Payment at 8%

Monthly Payment at 9%

$1,000

$10.12

$10.61

$11.10

$11.61

$12.13

$12.67

$5,000

$50.62

$53.03

$55.51

$58.05

$60.66

$63.34

$10,000

$101.25

$106.07

$111.02

$116.11

$121.33

$126.68

$15,000

$151.87

$159.10

$166.53

$174.16

$181.99

$190.01

$20,000

$202.49

$212.13

$222.04

$232.22

$242.66

$253.35

$25,000

$253.11

$265.16

$277.55

$290.27

$303.32

$316.69

$30,000

$303.74

$318.20

$333.06

$348.33

$363.98

$380.03

SUPPORT SITES

www.studentloans.gov

Overview of loan repayment, deferment, forbearance, and forgiveness programs

www.nslds.ed.gov

Overview of all federal loans, including amounts, interest rates, lender, servicer, status

CONSOLIDATION

Should A Student Consolidate?

Are monthly payments manageable?

If students are having trouble meeting monthly payments, have exhausted deferment and forbearance options, and want to avoid default, a Direct Consolidation Loan may help.

Too many monthly payments?

If students are sending payments to more than one lender every month and want the convenience of a single monthly payment, consolidation is an option.

What are the interest rates?

If students have variable interest rates on federal education loans, they may want to consolidate. The interest rate for a Direct Consolidation Loan is fixed for the life of the Direct Consolidation Loan. The rate is based on the weighted average interest rate of the loans being consolidated, rounded to the next nearest higher one-eighth of one percent and can not exceed 8.25 percent.

How much is the student willing to pay over the long term?

Like a home mortgage or a car loan, extending the years of repayment increases the total amount to repay.

How many payments are left on the loans?

If a student is close to paying off their student loans, it may not be worth the effort to consolidate or extend payments.

Benefits of Federal Direct Loan Consolidation

One Lender and One Monthly Payment

Borrowers have only one lender, the U.S. Department of Education, and one monthly payment due for all loans included in a Direct Consolidation Loan.

Flexible Repayment Options

Borrowers can choose from multiple repayment plans with various terms to repay their consolidation loan(s), including an Income Contingent Repayment and an Income-Based Repayment Plan. These plans are designed to meet the different and changing needs of borrowers. Borrowers can switch repayment plans at anytime. If borrowers select the IBR Plan and want to change at a later date, their only option will be the Standard Plan.

No Minimum or Maximum Loan Amounts or Fees

There is no minimum amount required to qualify for a Direct Consolidation Loan. In addition, consolidation is

free.

Varied Deferment Options

Borrowers with consolidation loans may qualify for renewed deferment benefits. If borrowers have exhausted the deferment options on their current federal education loans, a consolidation loan may renew those deferment options. In addition, borrowers may be eligible for additional deferment options when they obtain their first Direct Loan if they have an outstanding balance on a FFEL Program loan made before July 1, 1993.

Reduced Monthly Payments

A consolidation loan

may

ease the strain on a borrower's budget by lowering the borrower's overall monthly payment. The minimum monthly payment on a consolidation loan may be lower than the combined payments charged on a borrower's federal education loans.

Retention of Subsidy Benefits

There are two possible portions to a consolidation loan, subsidized and unsubsidized. Borrowers retain their subsidy benefits on loans that are consolidated into the subsidized portion of a consolidation loan.

Who Is Eligible?

Borrowers must have at least one Direct Loan or Federal Family Education Loan (FFEL) that is in grace, repayment, deferment or default status. Loans that are in an in-school status cannot be included in a Direct Consolidation Loan.

Borrowers can consolidate most defaulted education loans, if they make satisfactory repayment arrangements with the current loan holders or agree to repay their new Direct Consolidation Loan under the Income Contingent Repayment Plan.

Borrowers who do not have Direct Loans may be eligible for a Direct Consolidation Loan if they include at least one FFEL Loan

OR

intend to apply for loan forgiveness under the Public Service Loan Forgiveness Program.

Borrowers who have only a Direct Consolidation Loan cannot consolidate again unless they include an additional loan.

NOTE:

The Direct Loan Servicing Center has information on the Public Service Loan Forgiveness Program.

Eligible Loans

The following federal education loans are eligible for consolidation into a Direct Consolidation Loan:

Subsidized Loans

Subsidized Federal Stafford Loans

Direct Subsidized Loans

Subsidized Federal Consolidation Loans

Direct Subsidized Consolidation Loans

Federal Insured Student Loans (FISL)

Guaranteed Student Loans (GSL)

Unsubsidized Loans:

Unsubsidized and Nonsubsidized Federal Stafford Loans

Direct Unsubsidized Loans, including Direct Unsubsidized Loans (TEACH) (converted from TEACH Grants)

Unsubsidized Federal Consolidation Loans

Direct Unsubsidized Consolidation Loans

Federal PLUS Loans (for parents or for graduate and professional students)

Direct PLUS Loans (for parents or for graduate and professional students)

Direct PLUS Consolidation Loans

Federal Perkins Loans

National Direct Student Loans (NDSL)

National Defense Student Loans (NDSL)

Federal Supplemental Loans for Students (SLS)

Parent Loans for Undergraduate Students (PLUS)

Auxiliary Loans to Assist Students (ALAS)

Health Professions Student Loans (HPSL)

Health Education Assistance Loans (HEAL)

Nursing Student Loans (NSL)

Loans for Disadvantaged Students (LDS)

Ineligible Loans

Some loans are always ineligible for consolidation. While these loans may not be included in a Direct Consolidation Loan, they may be considered in the calculation of the maximum repayment period under the Graduated or Extended Repayment Plan.

These include but are not limited to the following:

Loans made by a state or private lender and not guaranteed by the federal government

Primary Care Loans

Law Access Loans

Medical Assist Loans

PLATO Loans

How Do Students Apply?

Online Web Application: Apply online. Visit the Application and Promissory Note Home Page,

https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jspxpress

Phone Application:

1.800.557.7392. Apply over the phone if you have all Direct Loans.   

Download a paper copy

of the application and promissory note: including the complete contents of the application package.

OR

Request an application package be mailed:

Phone at 1.800.557.7392, 8AM to 8PM (EST)

(TDD 1.800.557.7395) or 334.206.7400 outside USA

E-mail at loan_consolidation@mail.eds.com

Common Student FAQs

Can I consolidate a Perkins Loan?

Yes, it is possible to consolidate Perkins Loans into a Direct Consolidation Loan if borrowers include at least one Direct Loan or Federal Family Education Loan (FFEL) in their request. Perkins Loans cannot be included in a Direct Consolidation Loan by themselves. Furthermore, all Perkins Loans consolidated into the Direct Loan Program will be included in the unsubsidized portion of the Direct Consolidation Loan.

Borrowers should carefully weigh the advantages and disadvantages of including a Perkins Loan in a consolidation loan.

It is recommend that students consider the following points prior to making a decision:

Perkins Loans are eligible for additional cancellation benefits, such as performing certain kinds of public service. This benefit is lost when a Perkins Loan is included in a Direct Consolidation Loan.

Perkins Loans have a grace period of 6-9 months. When a Perkins loan is consolidated, any remaining grace period is lost.

Interest does not accrue when a Perkins Loan is placed in deferment. Since a Perkins Loan is included in the unsubsidized portion of a Direct Consolidation Loan, borrowers are responsible for interest that accrues throughout the deferment period.

Perkins Loans generally have a lower interest rate but have a less flexible repayment period of 10 years.

Common Student FAQs Continued…

Can I Consolidate a Defaulted Loan?

Generally, federal education loan(s) in default may be consolidated in a Direct Consolidation Loan if borrowers:

Agree to repay the loan(s) under the Income Contingent Repayment Plan.

OR

Make satisfactory repayment arrangements with the current loan holder(s).

*If, before applying for consolidation, borrowers who want to completely clear the default notation from their credit records, may want to consider another option: loan rehabilitation. Borrowers should contact their loan holders to obtain more information about this option.

Borrowers cannot consolidate defaulted loans under these conditions:

If a judgment has been issued against a defaulted loan, it cannot be included in the consolidation unless the judgment order has been vacated (dismissed).

If they are trying to consolidate defaulted Direct Consolidation Loans.

If they are trying to consolidate defaulted FFEL Consolidation Loans unless they have made satisfactory repayment arrangements with their current loan holder OR the borrowers agree to repay under the Income Contingent Repayment Plan.

If they are trying to consolidate defaulted Perkins or health professions loans unless they have made satisfactory repayment arrangements with their current loan holders.

FAQs Continued…

What is the Income-Based Repayment Plan (IBR)?

Your monthly payments will be based on annual income and family size, and spread over a term of up to 25 years. You must be experiencing a partial financial hardship to initially select this plan. Once you select this plan, you cannot change to any other plan except the Standard Plan.

If you consolidate more than one loan type (subsidized, unsubsidized and PLUS) ,you will have one Direct Consolidation Loan with up to two parts: Direct Subsidized and Direct Unsubsidized (which includes PLUS) Consolidation Loans. Even with up to two parts of each Direct Consolidation Loan, you make only one payment each month.

How long does it take to consolidate my loans once I submit my application?

The consolidation process generally takes 60-90 days. Using our online Web application can reduce the amount of time it takes to consolidate a borrower's loan.

Special Direct Consolidation Loans

Special Direct Consolidation Loans to eligible borrowers, beginning in January 2012. This is a short-term consolidation opportunity, ending June 30, 2012, for borrowers with

at least one student loan held by the Department (a Direct Loan or a Federal Family Education Loan [FFEL] owned by the Department and serviced by one of the Department’s servicers);

and

at least one commercially-held FFEL loan (a FFEL loan that is owned by a FFEL lender and serviced either by that lender or by a servicer contracted by that lender).

-

Special Direct Consolidation Loans

Who is eligible for a Special Direct Consolidation Loan?

You must have at least one loan owned by the Department of Education and at least one commercially-held FFEL loan to qualify for a Special Direct Consolidation Loan.

What federal student loans are eligible for the Special Direct Consolidation Loan program?

While you must have both a Department-owned loan and a commercially-held FFEL loan to be eligible, ONLY your commercially-held FFEL loans are eligible for consolidation under this initiative. These include:

FFEL Subsidized and Unsubsidized Stafford Loans;

FFEL PLUS Loans (both those taken out by graduate/professional students and those taken out by a parent to pay for the costs of an undergraduate student); and

FFEL Consolidation Loans

In order to be eligible for consolidation under this initiative, these loans

must be

in grace, repayment, deferment, or forbearance.

Special Direct Consolidation Loans

The following loans are ineligible for this program:

FFEL loans in default or subject to a bankruptcy proceeding;

Perkins Loans;

Health Education Assistance Loans (HEAL), Health Professions Student Loans (HPSL), Nursing Student Loans (NSL), Loans for Disadvantaged Students (LDS); and

Private student loans

What are the benefits of Special Direct Consolidation Loans?

Interest rate reduction:

You will receive a 0.25% interest rate reduction from the current interest rate on your commercially-held FFEL loan(s) as of the date of consolidation. The interest rate will be fixed for the life of the loan and cannot exceed 8.25%.

Repayment term will not be changed:

The repayment term on your Special Direct Consolidation Loan (the length of time you have to repay the loan) will remain the same as your current repayment terms and will not be reset. As a result, you will pay less interest over the life of the loan than you would with a traditional Direct Consolidation Loan.

Credit for Previous Income-Based Repayment (IBR) Payments:

If you made any IBR loan payments on your commercially-held FFEL loans prior to consolidation, those payments will count toward the required repayment time for cancellation if you remain in IBR. Under IBR, any remaining loan balance is forgiven after 25 years of repayment.

Eligibility for loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program:

Loans are eligible for the PSLF Program if you meet the additional program requirements. Under this program, you may qualify for forgiveness of the remaining balance due on your eligible Direct Loans after you have made 120 payments on those loans under certain repayment plans while employed full time by certain public service employers.

How are Special Direct Consolidation Loans different than traditional Direct Consolidation Loans?

Traditional Direct Consolidation Loan

Special Direct Consolidation Loan

Repayment Term

The repayment term for the loan starts over, giving students longer to repay their loan. A longer repayment term may result in lower monthly payments but will ultimately increase the amount the borrower will pay over the life of the loan since more interest will accrue during a longer repayment period.

Each loan that is consolidated retains its original repayment term. As a result, borrowers will pay less interest over the life of the loan than they would under the traditional consolidation program.

Interest Rate

A fixed rate based on the weighted average of the interest rates of those loans being consolidated rounded up to the nearest one-eighth of 1%, not to exceed 8.25%.

A fixed rate (not to exceed 8.25%) after applying the 0.25% interest rate reduction to the FFEL loans being consolidated.

Electronic Debit Benefit

Eligible for a 0.25% interest rate reduction if the loan is repaid through the Department’s automatic debit system.

Eligible for an additional 0.25% interest rate reduction if the loan is repaid through the Department’s automatic debit system.

Special Direct Consolidation Loans

Where can I get more information about Special Direct Consolidation Loans?

If you have further questions about Special Consolidation Loans, you can call 1-800-4-FED-AID (1-800-433-3243) for more information.

Information presented on Special Loan Consolidation came from:

http://studentaid.ed.gov/PORTALSWebApp/students/english/specialconsolidation.jsp

QUESTIONS OR DISCUSSION?

Contact information:

Raina Chezem

Regional Director

Nelnet

Loan Servicing

raina.chezem@nelnet.net